Homebuilders up as market stabilizes

Survey shows house prices rising; FTSE ends higher

SarahTurner

LONDON (MarketWatch) -- Homebuilders ended broadly higher Tuesday after a survey of house prices pointed to a steadying of the market.

The Nationwide Building Society said that U.K. house prices rose 1.3% in October, bringing the annual growth rate to 3.3% and reversing falls recorded in August and September.

Homebuilders reacted well to the news, with Taylor Woodrow (TWOD) ending up 2.4% and Bovis Homes (BVS) gaining 3%.

Deutsche Bank analysts said that recent profit taking in the U.K. home-building sector has created some "value situations" for longer term investors looking for exposure to the mid cap FTSE 250 index.

The bank initiated Taylor Woodrow and George Wimpey (WMPY) at buy.

The lender attributed the gain to an interest-rate cut in August, and cautioned that data for October suggest stabilization in the market rather than a shift to price acceleration.

"Housing market affordability remains stretched...affordability and overall debt levels will still have to adjust to more comfortable levels before we can expect any widespread increase in demand and thus prices," said Nationwide group economist Fionnuala Earley.

Stretched affordability and high debt in the housing market usually sifts through to consumers, leaving them with less to spend. British retailers have been highlighting the weaker consumer-spending trend for some time.

Broadly, the FTSE 100 index (UKX) ended up 0.5% at 5,344. European markets ended down slightly. See Europe Markets.

Discount-clothing retailer Matalan (MTN) closed up 0.3% after earlier declines. It said first-half trading has been tough, characterized by weak consumer demand.

"With consumer spending under constant pressure, we will plan for the challenging environment to continue," the company added.

"(Matalan's) comments on current trading highlight how tough the clothing market is right now and the risk of further downgrades across the sub-sector if we don't get a snap of wintry weather soon," said Numis Securities.

Numis said Marks & Spencer (MKS) can rely on internal recovery initiatives and margin improvements to drive its bottom line, but remains concerned about Next (NXT). Next shares added 0.5%.

"Not only is Next's offer looking tired compared to the likes of Zara, H&M and Primark, but its largest competitor (M&S) is now showing some fight, the gross-margin benefits of improved sourcing and a weak dollar are wearing off and its rapid space expansion is cannibalizing sales from existing stores at the worst possible time," said the brokerage firm.

FTSE stability came in part from property companies, which gained ground after J.P. Morgan adjusted its view on the pan-European property sector.

Hammerson (HMSO) and British Land (BLND) increased after the J.P. Morgan upgrades.

In other news, Pearson PLC
PSO, +2.96%
(PSON) added 1.3%. The publisher of the Financial Times newspaper and Penguin books said it performed in line with its own expectations by posting a 20% rise in nine-month underlying operating profit and a 10% rise in underlying sales.

Its education division continues to drive results, while it's on track to break even at the Financial Times, Pearson said.

"The education business, in particular, looks set to exceed expectations, with all divisions having grown faster at the 9-month stage than our full year forecast," noted analysts at Seymour Pierce. They see scope for a small increase in 2005 estimates.

Other news centered on airport operator BAA (BAA), which fell 1.1%. It said pretax profit dropped 40% to 367 million pounds, while revenue rose 4% to 1.17 billion pounds, reflecting a slowing U.K. economy, this summer's London bombings and strikes at British Airways (BA) caterer Gate Gourmet.

BAA also said it'll cut 700 jobs in back office and management to save 45 million pounds a year.

Insurer Friends Provident PLC (FP) gained ground, up 0.9%, after it said total life and pensions new business on an APE basis rose 28% to 142.3 million pounds ($252 million) in the third quarter.

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